Question 1

If widgets and gidgets are complements and both are normal goods, then a decrease in the demand for widgets will result from:
A) an increase in the price of widgets.
B) a decrease in income.
C) a decrease in the price of gidgets.
D) a decrease in the price of gidgets and a decrease in income.

Accepted Answer

A decrease in income will lead to a decrease in the demand for normal goods, including widgets and their complements, gidgets.

Question 2

Most workers view leisure and income as:
A) goods.
B) bads.
C) goods and bads, respectively.
D) bads and goods, respectively.

Accepted Answer

Most workers view leisure and income as goods because they are both desirable and valuable to individuals. Leisure allows for time to relax, engage in hobbies, or spend time with family and friends, while income provides financial security and the ability to purchase goods and services.

Question 3

Running a supermarket involves:
A) a lower level of risk than running a gourmet shop.
B) a higher level of risk than running a gourmet shop.
C) the same level of risk as running a gourmet shop.
D) All of the statements associated with this question are correct.

Accepted Answer

The answer of Running a supermarket involves:
A) a lower level...

Question 4

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up, the $10 implies the:
A) marginal rate of substitution between leisure and income.
B) market rate of substitution between leisure and income.
C) market rate of transformation between leisure and income.
D) marginal rate of transformation between leisure and income.

Accepted Answer

The $10 payment offered by the firm represents the market rate of substitution between leisure and income, meaning that it reflects the price at which the worker is willing to give up one hour of leisure in exchange for one unit of income. The marginal rate of substitution between leisure and income, on the other hand, represents the relative amount of willingness to exchange one unit of leisure for one unit of income, and is not directly reflected by the payment offered by the firm. The market rate of transformation between leisure and income and the marginal rate of transformation between leisure and income are not applicable in this scenario.

Question 5

The firm manager with indifference curves which are convex from the origin (output on the horizontal axis and profit on the vertical axis) views:
A) only profits to be "goods."
B) only outputs to be "goods."
C) both profits and outputs to be "goods."
D) None of the statements is correct.

Accepted Answer

The convexity of the indifference curves from the origin implies that the firm manager prefers both higher levels of output and higher levels of profit. This is because the shape of the indifference curves indicates that the firm manager is willing to give up some profit in exchange for more output, and vice versa. Hence, both outputs and profits are viewed as "goods" by the firm manager.

Question 6

If you include in your offerings some inferior goods, the demand for these products will increase:
A) during bad economic times.
B) during economic booms.
C) when incomes are high.
D) All of the statements associated with this question are correct.

Accepted Answer

During bad economic times, consumers may be more price-sensitive and willing to purchase lower quality or cheaper goods, leading to an increase in demand for inferior goods. Economic booms and high incomes tend to lead to an increase in demand for normal goods, which are of higher quality and price.

Question 7

A firm manager with vertical indifference curves (output on the horizontal axis, profit on the vertical axis) views:
A) only profits to be "goods."
B) only output to be "goods."
C) both profits and outputs to be "goods."
D) None of the statements is correct.

Accepted Answer

The answer of A firm manager with vertical indifference curves...

Question 8

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. Given these prices and income, what is Mitchell's equilibrium consumption of X?
A) X < 50
B) X = 50
C) X > 50
D) None of the statements is correct.

Accepted Answer

The answer of Mitchell's money income is $150, the price...

Question 9

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X must he give up in order to satisfy his budget constraint?
A) ½
B) 1
C) 2
D) 4

Accepted Answer

The answer of Mitchell's money income is $150, the price...

Question 10

Mitchell's money income is $150, the price of X is $2, and the price of Y is $2. Given these prices and income, Mitchell buys 50 units of X and 25 units of Y. Call this combination of X and Y bundle J. At bundle J, Mitchell's MRS is 2. At bundle J, if Mitchell increases consumption of Y by 1 unit, how many units of X can he give up and still reach the same level of utility?
A) ½
B) 1
C) 2
D) 4

Accepted Answer

The answer of Mitchell's money income is $150, the price...

Question 11

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What are the maximum total earnings the worker can earn in a day?
A) $492
B) $392
C) $192
D) $292

Accepted Answer

Since the worker can use 24 hours per day, the maximum he can work is 24 hours. Therefore, he can earn a maximum of 24*$8=$192 from his hourly wage. In addition, he will earn a fixed payment of $100 per day, regardless of how many hours he works. Thus, the maximum total earnings he can earn in a day are $192+$100=$292.

Question 12

The firm manager with horizontal indifference curves (output on the horizontal axis, profit on the vertical axis) views:
A) only profits to be "goods."
B) only output to be "goods."
C) both profits and outputs to be "goods."
D) None of the statements is correct.

Accepted Answer

Horizontal indifference curves imply that the manager values only profits as "goods" and is indifferent to changes in output.

Question 13

Consider a two-good world, with commodities X and Y. Which of the following statements is correct?
A) Both X and Y must be normal goods.
B) If good X is a normal good, good Y must be an inferior good.
C) If good X is an inferior good, good Y must be a normal good.
D) Both good X and good Y can be inferior goods.

Accepted Answer

The answer of Consider a two-good world, with commodities X...

Question 14

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the market rate of substitution between leisure and income?
A) $5
B) $8
C) $10
D) None of the statements is correct.

Accepted Answer

The market rate of substitution between leisure and income is the wage rate, which is $8 per hour in this case.

Question 15

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the minimum the worker can earn in a day?
A) $50
B) $100
C) $192
D) $200

Accepted Answer

The minimum the worker can earn in a day is the fixed payment of $100, as this amount does not depend on the number of hours worked.

Question 16

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up, then the opportunities confronting the worker will be given by the:
A) convex curve from the origin.
B) concave curve from the origin.
C) straight line with a negative slope.
D) straight line with a positive slope.

Accepted Answer

The offer to pay a worker $10 for each hour of leisure given up creates a constant trade-off between leisure and income, represented by a straight line with a negative slope. This is because for each hour of leisure sacrificed, the worker earns an additional $10, implying a constant rate of substitution.

Question 17

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the equation for the worker's opportunity set? (E is total earnings and L is leisure.)
A) E = 100 - 8L
B) E = 192 - 8L
C) E = 292 - 8L
D) None of the statements is correct.

Accepted Answer

The worker can work up to 24 hours, earning $8 per hour, plus a fixed payment of $100. The maximum earnings if working all 24 hours is 24*8 + 100 = 292. The opportunity set equation is E = 292 - 8L, where L is leisure hours.

Question 18

Managers can get workers to work longer hours:
A) by increasing wages on all hours worked.
B) by lowering wages on all hours worked.
C) with higher overtime pay in excess of regular hourly pay.
D) with lower overtime pay in excess of regular hourly pay.

Accepted Answer

Offering higher overtime pay in excess of regular hourly pay is the best option to incentivize workers to work longer hours. This gives workers an opportunity to earn more money for their extra effort without undermining the value of their regular hours worked. Lowering wages, either on regular or overtime hours, would likely demotivate workers and potentially lead to decreased productivity. Increasing wages on all hours worked could also be expensive for the company and may not be necessary to motivate workers to work longer hours.

Question 19

Many gourmet shops go out of business during recessions since they sell almost exclusively:
A) inferior goods.
B) normal goods.
C) substitutes.
D) complements.

Accepted Answer

Gourmet shops sell normal goods, which are not essential and can be easily substituted for cheaper alternatives during a recession when consumers have less disposable income. Therefore, demand for gourmet products may decrease, and the business may struggle or go out of business.

Question 20

Joe consumes 48 units of food and 12 units of clothing. If food is an inferior good:
A) Joe would strictly prefer receiving a $10 gift certificate at a clothing store to receiving $10 in cash.
B) Joe would strictly prefer receiving $10 in cash to receiving a $10 gift certificate at a clothing store.
C) Joe would be indifferent between receiving a $10 gift certificate at a clothing store and receiving $10 in cash.
D) upon receiving a $10 gift certificate at a clothing store, Joe would consume less clothing and more food.

Accepted Answer

Since food is an inferior good, as Joe's income increases (such as by receiving $10 in cash), he would prefer to spend more on normal goods (like clothing) rather than on more of the inferior good (food). Therefore, having the flexibility of $10 in cash is more valuable to him than being restricted to spending it on clothing, as it allows him to allocate his resources according to his preferences.

Quiz 4: The Theory of Individual Behavior

If widgets and gidgets are complements and both are normal goods, then a decrease in the demand for widgets will result from:

Most workers view leisure and income as:

Running a supermarket involves:

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up, the $10 implies the:

The firm manager with indifference curves which are convex from the origin (output on the horizontal axis and profit on the vertical axis) views:

If you include in your offerings some inferior goods, the demand for these products will increase:

A firm manager with vertical indifference curves (output on the horizontal axis, profit on the vertical axis) views:

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What are the maximum total earnings the worker can earn in a day?

The firm manager with horizontal indifference curves (output on the horizontal axis, profit on the vertical axis) views:

Consider a two-good world, with commodities X and Y. Which of the following statements is correct?

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the market rate of substitution between leisure and income?

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the minimum the worker can earn in a day?

If a firm offers to pay a worker $10 for each hour of leisure the worker gives up, then the opportunities confronting the worker will be given by the:

Suppose a worker is offered a wage of $8 per hour, plus a fixed payment of $100 per day, and he can use 24 hours per day. What is the equation for the worker's opportunity set? (E is total earnings and L is leisure.)

Managers can get workers to work longer hours:

Many gourmet shops go out of business during recessions since they sell almost exclusively:

Joe consumes 48 units of food and 12 units of clothing. If food is an inferior good: